How to align Sustainable Finance and SDGs? an example of impacting finance.
Is my money invested in order to help solving the world’s problems ? An increasing number of retail and institutional investors already have a real interest in understanding how their investments have an impact on societal issues. But the field of impact investing really needs some guidelines and parameters. So providing the Sustainable Development Goals allows us to be able to both target and measure our investments.
In the face of global challenges — from climate change to poverty and hunger, from social justice to gender equality — sustainable finance can give important supports and collaborate with other businesses to create more effective change. The 17 Sustainable Development Goals (SDGs) adopted in 2015 by the United Nations member states are a way to restate the value generation chain for companies in order to help them facing these global challenges that threaten our planet and societies. The SDGs have not only set a common goal for the whole world, but also have the capability to create a common language for every action to be taken. The SDGs allow us to focus our efforts on the issues that matter most to us. As we have met with clients and discussed the SDGs, we have found that a different SDG speaks to each client.
The investment industry is starting to adopt a common understanding of how it can align investments to globally accepted SDGs. However, it is still not clear how the mainstream investment industry can funnel capital towards areas where capital is needed the most. Current institutional asset owner portfolios are not yet sufficiently aligned with the SDGs as long as investees do not clearly articulate how their products and services are addressing areas where challenges are most severe. Within their investable universe, they do not or they partially optimize for areas with most SDG needs. A thematic approach enables an investor to clearly identify and communicate what type of impact its investment is achieving. It makes a comparison between portfolio companies’ impact and SDG indicators more straightforward. This holds funds more accountable for the impact their investees are creating. However, it also requires specific expertise which asset owners can gain by building teams themselves or by employing external fund managers. The analysis suggests that impact investment funds can be at least partially credited for improvements in SDG indicators they invest in.
The SDGs present also a convenient framework for comparisons because they enable assessment of a fund’s contribution and improvements according to the SDG indicators. As a result, asset owners can increasingly rely on these funds to align their investments with the SDGs, maximize their impact on the realization of the UN SDG’s and achieve competitive financial returns in the same time. Next to mapping how the portfolio is currently aligning to the SDGs, it is important also to establish ways investors can increase investments in SDGs.
Becoming in 2017 a B Corp was definitely a step in that journey, but also focusing on one or more of the SDGs (as they are very interdependent) elevates businesses to exist in service of finding real solutions to the problems that matter. As a Certified B Corp, our firm has used the existing B Impact Assessment as a roadmap to improve the sustainability of our firm. In this context, B Lab is working with the UN Global Compact to develop a tool for launch in 2020 to help companies chart their next decade of progress on the SDGs. This platform will then give us the next step: tools to align our mission with the SDGs and report back to our stakeholders.
FIA A.M also signed the United Nations Principles for Responsible Investment (UN PRI) in April 2018. In the process, an internal CSR / ESG Committee was created and ESG investment policies were formalized. All sustainable investment efforts are coordinated by a dedicated analyst while partnerships with specialized research providers have been established. Since 2018, two complementary approaches to sustainable and impacting investment coexist within FIA A.M. Firstly, a quantitative screening, makes it possible to evaluate investment funds’ performance on environmental (E), social (S) and governance (G) issues. Only investment funds with an average score greater than or equal to 3 are considered as eligible for the investment. In parallel with this screening approach of the investment universe, the manager builds a portfolio in which he integrates investment funds whose underlyings contribute to reducing social and environmental imbalances, based on the United Nations Sustainable Development Goals (SDGs). This is managed by a well-resourced dedicated team of responsible analyst and portfolio managers, living and breathing it every day, offering investors a solid foundation of expertise.
One of our most exciting projects was our two first private impact investment funds, investing directly in emerging markets and in line with some SDGs Goals, as access to education for example. Discussing this business with our clients has inspired many of them and given them hope that businesses are in fact working to create a more sustainable economy.
Head of Portfolio Management, FIA Asset Management